Act 47
10/30/2011
One of the greatest benefits of living in Pennsylvania is our system of local government.
Whether you live in a city, a township, or a borough, local officials, zoning hearings, planning commission meetings and other processes are open and located close to residents, inviting them to closely participate in and shape the outcome of many decisions that affect their property and quality of life.
As a member of the House Committee on Local Government, I know that local officials answer directly to the voters and are held accountable by them on Election Day – their actions and institutions should not be interfered with by the state.
But, when local government becomes so dysfunctional that it creates a situation which threatens to harm residents of other municipalities, and possibly the whole state, it becomes the responsibility of the Legislature to protect those citizens.
Unfortunately, such a situation has developed in the state’s capital city.
The City of Harrisburg is currently about $310 million in debt, and until it recently took out an ill-advised loan, had no way to service its debt payments or meet payroll for city employees.
Some members of Harrisburg’s city council have advocated declaring bankruptcy, but doing so would likely downgrade the bond rating of the rest of Pennsylvania’s municipalities, requiring them to pay higher interest rates.
That could result in townships such as Londonderry, or boroughs such as Middletown, having to choose between lowering the amount they can afford to borrow for needed projects, or increasing taxes to cover higher interest payments.
Protecting the rest of the state by creating a way for a municipality to avoid declaring bankruptcy is precisely why the Municipalities Financial Recovery Act of 1987 – commonly referred to as Act 47 – was created. So, the city administration was doing the right thing acting when it began the Act 47 process by requesting “financially-distressed” status in 2010.
Once a municipality is granted “distressed” status, the state appoints an Act 47 coordinator to develop a financial recovery plan with the goal of putting the city on sound financial footing. It is then incumbent on the municipality’s governing body, in this case the Harrisburg City Council, to vote to adopt that plan.
Such a recovery plan was developed, but it was voted down by the city council in July, an action that has never before occurred in the history of Act 47.
Harrisburg’s mayor then developed another Act 47 financial recovery plan for council’s consideration, and it was also voted down – twice.
This unprecedented chain of events has brought unusual hardship on Harrisburg’s residents.
Unable to pay its bills, includes payroll for police and firefighters, the city council used the Harrisburg Parking Authority to take out a $10 million loan, $7.4 million of which went to the city.
That is enough for the city to pay its bills through 2011, but because of the city’s tenuous financial position and immediate need, the loan came with the “payday advance” interest rate of 10.75 percent.
So, on top of threatening the credit ratings of other municipalities, city council members have now burdened Harrisburg’s taxpayers with further debt - $5 million in interest payments during the first four years alone. This could have been avoided had they done their job and adopted an Act 47 plan.
That is when the Legislature had to take action.
On ****, the House of Representatives voted *** to *** to adopt legislation put forth by Representative Glen Grell (R-Cumberland) which provides a three-step process for “distressed” cities that fail or refuse to adopt an Act 47 recovery plan, which Harrisburg has clearly done.
The legislation authorizes the governor to immediately declare a state of fiscal emergency in Harrisburg, and develop an emergency action plan to provide for the city’s vital services, including public safety and emergency services, water and sewer services, and trash pickup.
But Rep. Grell’s legislation also gives the city another chance to get it right.
The city council would have 30 days from the declaration of fiscal emergency to enact a recovery plan. If it fails to do that, the governor may then request a court-appointed financial expert with a term of two years who would be authorized for two years to implement every aspect of a court-approved recovery plan.
The legislation also seeks to include city officials by creating a financial advisory committee consisting of the mayor, the city council president, an appointee of the county commissioners, and an appointee of the governor.
I strongly supported this legislation due to the dire circumstances facing city residents and possible adverse impact on other residents of the state. It is unfortunate that the situation in Harrisburg had to reach this point, and it in no way reflects on our system local government as a whole.
For example, when the City of Reading sought Act 47 assistance in 2009, the mayor and the city council got together and agreed on what they should do and how to do it. Their proactive recognition of their financial situation, and what led to it, enabled them to have input on the development and speedy enactment of a financial recovery plan that fit their needs of their residents.
Conversely, one of the reasons Harrisburg City Council members who voted down the financial recovery plans gave for doing so was that it did not include a new tax. And therein lies the problem – they still believe Harrisburg’s fiscal woes are a result of not enough revenue rather than poor management.
As a strong advocate of local government, I did not take this vote lightly. I am hopeful Harrisburg officials will adopt a financial recovery plan within 30 day window this legislation provides in order to avoid the governor having to declare a fiscal emergency.
This regrettable episode has pointed out the need for a thorough review of Act 47. As a member of one of the committees involved in this review, you can be assured that the best interests of residents of the 98th District and maintaining the integrity of our system of local government will guide my thoughts and decisions throughout the process.